Agrium's legal win offers some relief to entire borough

Posted: Sunday, July 25, 2004

While there's more legal wrangling ahead, an arbitration panel's ruling in the ongoing gas dispute between Unocal Corp. and Agrium U.S. Inc. is welcome news for the stability and certainty it provides Agrium's fertilizer plant in Nikiski even if it is for just the short term.

The panel determined Unocal owes Agrium for failing to deliver natural gas to the Nikiski plant under the terms of an existing purchase and sale agreement.

The decision provides a measure of relief not only to Agrium and its employees and their families, but to the entire community. Company officials had warned earlier this year, the Nikiski plant might have to close by the end of next year without adequate supplies of gas. Not only would such a drastic move be disastrous for Agrium workers and their dependents, but it also would be a major blow to the economic health of the entire borough.

In 2002, the latest year statistics are available, Agrium ranked as the eighth largest employer in the Kenai Peninsula Borough. It also was the borough's No. 2 taxpayer, right behind Unocal.

A 2002 study by the McDowell Group expands on the meaning of those numbers and points out a few others:

Agrium's payroll average then was $83,865 per employee; the average salary in the borough was $32,784. The plant's $25 million in direct payroll generated additional indirect and induced earnings of $25 million, for a total of $50 million in salaries and wages in the peninsula's economy.

The borough that year received $2.4 million in industrial property tax from Agrium, an estimated minimum of $212,700 in residential property tax from Agrium employees' homes and $1.4 million in state funding for Agrium workers' school-age children's education for a total of $4 million in direct revenue to the borough.

In 2001, Agrium contributed $138,329 to 87 nonprofit organizations and programs, most of them in the Kenai area.

In 2001, Agrium spent about $95.2 million on Alaska goods and services; 95 percent of it on the peninsula.

"In summary, by Alaska economic standards, the Agrium operation is exceptional by its combination of high pay levels, amount and concentration of expenditures in the local area, and the degree of value-added manufacturing that occurs in Alaska prior to export. The result is a high multiplier impact," notes the McDowell report.

In other words, there's more at stake in this legal dispute than two corporations' bottom lines. Agrium and Unocal are both major players in the borough's economy. Their economic health affects the economic health of the entire borough and, to a certain extent, the state.

As the McDowell study noted, the Agrium plant is one of the few major manufacturing operations in Alaska that contributes to the state's economy by adding value to Cook Inlet natural gas production. Instead of just talking about "value-added" products, Agrium produces them.

It goes without saying that the Agrium plant is too valuable to the state and borough economies to lose.

Under the arbitration panel's decision, Agrium is expected to be able to operate at 92 percent of its capacity through June 30, 2005, and at 70 percent of its capacity the following year without additional gas from third parties. That provides some breathing room in helping the company develop additional long-term gas supplies.

The fact remains, however, that the Cook Inlet region needs a major, new source of natural gas. Agrium officials say they remain committed to finding alternative gas supplies for their Nikiski plant and to working for changes in pipeline systems and policies that will allow for the plant's continued operation.

Both the borough and state governments need to help in that pursuit for the simple reason that more is at stake than any one company's profit margin, including the relatively high-paying jobs the plant provides.

It's unfortunate that other issues remain in litigation between Unocal and Agrium. Proceedings on those matters are scheduled to begin in California Superior Court in Los Angeles in December.

While everyone understands business is business and companies must do what they must do to protect their bottom lines, it would be a shame to have a long, drawn-out, bitter court dispute taint the many contributions of these two corporate neighbors.

The hope is a speedy resolution can be found, and both companies can concentrate their time and resources on more productive undertakings including finding new gas supplies.